When retirees are overextended by extended family

Unpleasant surprises can await clients who have planned for reduced expenses in retirement, especially if they’re financially responsible for both older and younger family members.

In 2012, 5.4 million Canadians provided care to a senior family member or friend, according to StatsCan. And almost one-third (29%) of caregivers who lived with the seniors they cared for reported that their responsibilities had caused strain with other family members.

At the other end, more young adults are leaving the nest later. In 2016, more than one in three (about 35%) young adults aged 20 to 34 lived with at least one parent—a share that’s been increasing since 2001. For Ontario, that stat is more than two in five (about 42%), likely because of higher housing costs and cultural preferences, according to StatsCan.

Under one roof

Kids staying at home longer means that some early retirees are adjusting their plans. It’s not uncommon for clients to hold off on downsizing until the kids are 30, says Monique Madan, principal at Monique Madan Consulting in Toronto. That means retirees can’t access home equity and must continue to pay tax bills and maintenance costs for larger properties.

Housing adult children can also require renovations, says Todd Sigurdson, director of tax and estate planning at Investors Group in Winnipeg. Some clients even buy a larger home, he says.

Also, university costs for adult children can come in over budget, he says, if parents haven’t considered expenses like transportation and groceries.

Madan continually recalculates the “maximal sustainable budget” for clients as circumstances and market performance change. This reveals “the highest standard of living that someone can afford while ensuring they don’t run out of assets until age 90,” she says, at which point they typically tap into home equity.

Part of that calculation involves downsizing. Kids staying at home longer puts “a monkey wrench in that,” she says, and it’s her job to suggest when changes must be made or when the kids should chip in.

Even if parents don’t need the money, Madan suggests they ask kids to make payments; parents can return it to them when they eventually buy their own homes. That way the kids learn that income isn’t solely discretionary, she says.

Beyond the high cost of urban housing, Madan says clients tell her that a lack of well-paying entry-level jobs makes it harder to launch kids. While in some cases a second or third degree is required for good jobs, she tells clients to prioritize their own retirement over kids’ education beyond a bachelor’s degree. Kids can easily get school loans, she says.

Caregiver crunch

Caring for elderly parents can be emotionally fraught and result in increased expenses if parents haven’t planned well. For example, if elderly parents don’t have long-term or critical illness insurance, it could be too late, says Pamela Johnston, investment advisor and portfolio manager at Echelon Wealth Partners in Toronto.

Madan says it’s common for clients to aim to stay in their own homes as long as possible: “My clients agree that, by age 90, there’s a reasonable expectation that they’ll either borrow against the equity in their home for private nursing or sell it and go into assisted living.”

Seniors staying in their own homes must consider expenses for renovations or in-home care, says Johnston, which could require financial support from the sandwich generation.

Care costs are likely the biggest consideration as parents age, says Sigurdson, whether for homecare or a retirement or nursing home. On the plus side (financially speaking), discretionary spending by the sandwich generation could decrease if retired clients have less leisure time because of caregiving.

However, “It’s very important clients don’t overdo it when they’re cutting back,” he says. “These times tend to be very stressful for both parents and kids. They’ve got to make time for themselves,” even if it requires paying for care.

Madan incorporates eldercare expenses into clients’ cash flows as needed, since she says it’s an important expense to clients. “Sometimes, I have to give clients a reality check of what is possible,” she says.

She’s often asked to calculate how long clients can afford private nursing care or a higher level of assisted living for their parents, with the intention of switching to more affordable care when elderly parents lose lucidity. This allows them to enjoy a high level of service until they no longer appreciate those benefits. “Those are tough, intimate discussions,” says Madan.

Transferrable tax credits (all are non-refundable)

Clients with elderly parents or kids at post-secondary schools may be eligible for the following credits:

• Canada caregiver credit—available for those supporting a dependant, spouse or common-law partner with a physical or mental impairment. (As of 2017, the credit combines three previous credits: caregiver credit, family caregiver credit and credit for infirm dependants age 18 or older.)
• Medical expense tax credit—claim eligible expenses minus whichever is less: $2,302 (2018) or 3% of net income;* based on hospital services, nursing home costs or medical supplies incurred for dependants or a spouse or common-law spouse.
• Disability tax credit (DTC)—for those with disabilities or their support persons. Eligibility is based on severe and prolonged impairment that must be medically certified.
• Tuition tax credit—may be carried forward to future years or be transferred to a spouse or common-law partner, or to a parent or grandparent of either the student or the student’s spouse or common-law partner, subject to certain requirements and limitations.

*This phrase was updated on April 19, 2018, for clarity.